Dubai: Indian gold demand grew 25 per cent last year to 963.1 tonnes, according to a research report that reaffirms India as a key driver of global demand.

As seen in the last decade, Indian demand for gold will be driven by savings and real income levels and not by price.

The value of the Indian rupee has surged 400 per cent in value in the last decade.

Indian gold demand also boosted sales in the UAE's gold market — a key source for the Indian market.

The World Gold Council research shows that by 2020 cumulative annual demand for gold in India will increase in excess of 1,200 tonnes or approximately Rs2.5 trillion in value at current price levels.

India's continued rapid growth will give a shot in the arm to gold purchases by almost three per cent per annum over the next decade.

As seen in the last decade, Indian demand for gold will be driven by savings and real income levels and not by price.

India: Heart of Gold is the second in a series of research with focus on India. The first paper, India Heart of Gold: Revival was released in November 2010, and focused on the historical demand during the past 10 years and the revival in 2010.

Together they form a compendium, with the latest research including forecasts from the Centre for Monitoring the Indian Economy (CMIE), as well as contributions from leading academics and industry experts, Dr D. Pattanaik and Dr R. Kannan, which have been specially commissioned by the World Gold Council.

Ajay Mitra, Managing Director, India and the Middle East, World Gold Council, said: "The rise of India as an economic power will continue to have gold at its heart. India already occupies a unique position in the world gold market and, as private wealth in India surges over the next ten years, so will Indian demand for gold."

"In parallel to growth, socio and demographic challenges will need to be addressed given its immense diversity. This also applies to the gold market. Nevertheless, gold purchasing will continue, underpinned by India's long-standing and deep cultural affinity for gold; a love affair which transcends generations and makes India unlike any other gold market."

A detailed historical and econometric study by Dr Kannan finds that India's gold demand is influenced not only by the price of gold, but by macroeconomic, monetary and policy variables .

Biggest buyer

•  At more than 18,000 tonnes, Indian households hold the largest stock of gold in the world.
• Gold purchases in India accounted for 32 per cent of the global total in 2010.
• The CMIE forecasts that India's annual real GDP will grow at over 10 per cent from 2010-15, before slowing to an average rate of around 8.4 per cent until 2020.
• The vast majority of the Indian population (70 per cent) live in villages, which have traditionally formed the source of more than two thirds of Indian gold demand.
• This sector has been growing at less than one per cent per annum but is projected by CMIE to grow in future at over 5 per cent per annum, further fuelling gold demand.
•  The motivation for a jewellery purchase can be inextricably linked to value, wealth preservation and growth rather than pure adornment - there is therefore little distinction between investment and jewellery demand.
• Gold is integral to all Indian wedding ceremonies: purchases relating to Indian weddings typically account for 50 per cent of annual jewellery demand
•  The World Gold Council estimates that wedding-related purchasing will drive approximately 500 tonnes a year.